This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Sunday, May 24, 2009

Dock’s Top 10

We have advocated buying in this market for months. For readers who are unconvinced, here is a list of developing market conditions, all of which we view as the 10 best reasons to be buying stock.

1. Low TED spread. This indicator is a gauge of the confidence that European and U.S. banks have in one another. A low TED spread is indicative of confidence and also means that capital is flowing freely between banks so they can finance ongoing operations on a short-term basis.

2. Incredible amounts of liquidity in the system. The measures taken by the Treasury and Federal Reserve, as discussed in previous articles, have provided the financial system with significant excess capital.

3. This liquidity is beginning to move through the system, evident by the fact that home sales have been picking up lately, especially in markets hit especially hard in the recent collapse.

4. Low VIX. The VIX is a market index that measures perceived volatility in the market. Recently, the market has resumed its upward trend and been remarkably stable.

5. Much of the recent stability is because there hasn’t been nearly as much emotion surrounding the markets as there was in the fall. This is due in part to the fact that many investors are steering clear of the markets because the anguish suffered last year.

6. Since putting in a marginally lower bottom earlier this year, the stock market has resumed an upward trend, moving slowly higher, but not moving too fast.

7. In fact, so far the market is 30 percent off its most recent bottom. This is evidence to many investors that there are good returns to be had in this market, particularly for those who do their research and invest wisely.

8. The lack of emotion, namely fear or panic, as well as the stable building of an upward trend have all created a kind of calm confidence in the markets. Most of the investors still intimately involved with the markets for industry professionals are better at maintaining objectivity and making clear, rational decisions. These investors, as well as some individuals, since regrouping after 2008, are recognizing the bargains available in the market and working with professions to take advantage.

9. While it is not such a widely publicized fact, over the history of the stock market, the years with the largest gains on a percentage basis tend to closely follow the years with the biggest losses. Last year, was one of the worst years the stock market has ever experienced, so if history holds true, 2009 and 2010 could be very good for investors trying to recover. In fact, there is a growing group of investors, us included, who believe that this may be the start of a bull market in stocks. And while it wouldn’t be surprising to see the market correct, we believe that the next few years in stocks are going to be among the best in a generation or more.

10. With all this in mind, we think it’s safe to say that investors can disregard the old stock market adage of “sell in May and go away,” as it doesn’t seem likely to hold true this year. With the recent action in the markets, combined with the fact that investors are still reeling from last year and trying to remake money lost, it seems more likely that investors will working through what is traditionally a lull in trading.

All of these observations are positive for the market, and while conditions will undoubtedly change in the future, currently the reasons to buy stocks outweigh and outnumber the reasons to avoid investing. However, we do recognize that not everything about investing is logical; there is often emotion involved. We can go on and on with the reasons that people should be buying in this market, but investors need to look at their individual circumstances and determine what is right for them. We’ve said it before and we continue to tell people that they have to be able to go to sleep at night. You’re investments should help your comfort level, as they exist to help you prepare for the future. If the adviser or the strategy that you are currently using has been causing you to lose sleep, then it’s time to make a change.

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